Going Global II: Identifying Your Best Launching Pad
Clients and learners often ask, “How do I expand my business into overseas
markets? Are there ways to do it that hedge risk while still giving me a decent
shot at it?” In a word: absolutely! In fact, there are a number of options
available, both for entry and for growth.
Like all global-based strategies,
these remarks are intended for those with a long view, after having already
“exported” products and/or services overseas at acceptable – if not exceptional
– sales levels. International marketing and sales success requires the
understanding that this is a long-term play with substantial, upfront
investment required before returns are realized. Incisive umbrella strategies
and stamina are critical success factors.
In our previous discussion on “Going Global”, I addressed three key
overarching factors to keep in mind when beginning to consider entering foreign
markets:
1. Identify pilot markets based on strict, standardized criteria and
create metrics to monitor them effectively;
2. Move beyond thinking that the first new market should speak English
primarily. Sometimes they’re not the best target and can prove costly,
especially in terms of missed opportunities/targets; and
3. Design systems and processes to encourage bi-directional
communications and work flow from the field to “HQ” as well as the reverse
for greater levels of ROI, effectiveness and market penetration.
In this post, we’ll look at a brief overview of the next step: choosing the
best platform for foreign market entry and development, and some issues to keep
in mind along the way. Here are some key options, prioritized by both
risk and cost, in descending order:
1. Direct Entry – this is the standard, though most expensive entry
route; many companies start with one of the subsequent options here and move
their way up to this, a “permanent” scenario, if sales scale according to plan.
Direct entry, with an “owned” sales force, generally leads to establishing
facilities and operations; overseas staffs, networks and vendors.
Pro- establishes and embeds a solid market presence as a
milestone towards global leadership/dominance. Solidifies the perception of
market commitment and easily leverages localization issues. Often includes
hiring foreign nationals, which further embeds the brand. In the case of
products, this option can incur lower manufacturing and import/export costs.
Con – Is the most expensive, and consequently the highest
risk, even if everything goes right and all initial perceptions/research are
borne out with positive outcomes. Involves highly intense research, not only
into market conditions, favorabilities and operations, but also into HR and
legislative matters, such as anti-competition laws (as Microsoft has painfully
learned) and hire-fire policies. This option is often most effective as a goal
preceded by incremental steps, such as those below.
2. Indirect Entry – this generally involves the appointment of a
foreign-based distributor or agent; export merchant, agent, or
representative/management company; or cooperative. In recent times, other
related vehicles, such as contract sales forces, have also emerged.
Pro – For some, this is the best of both worlds, as the
agent/representative provides instant market access as well as familiarity. It
helps to get agents involved in the market entry process as soon as possible,
with a view to protecting IP and other confidential information, to leverage
localization factors.
Con – Lack of loyalty factor. Agents, etc. often represent
many lines/companies, which can make them savvy about your industry and
products/services, but not necessarily loyal to you. I have used this entry
path often, noting the above cautions and creating strategies for inducing
loyalties, even on a limited basis. Clarity of expectations and metrics are
also key here, to ensure the best of both worlds (employee/outsider) rather
than the worst.
3. Direct Investment – much like the way Venture Capitalist firms
purchase major levels of equity capital in start-ups, US companies can also
purchase significant levels of holdings in overseas companies, government rules
permitting. US vineyards, for example, have been known to purchase major shares
in vineyards in Chile or even Georgia (country, not US state).
Pro – This can be a strong entry strategy for those involved
in scenarios with a very long view, such as the agricultural one just
described. Often, it’s the first step in a joint venture or acquisition process
which enables companies to leverage market advantage immediately, while
governmental and corporate processes and policies proceed.
Con – One of the key challenges with both Direct Investment
and Joint Venture options can be the repatriation of funds; getting money out
of the (foreign) country. This is especially true in Emerging Markets, where
governments have often implemented Foreign Exchange controls. Thus, outbound
systems should be well in place before market entry (which may include
reinvestment of funds locally instead, as the path of least resistance and best
leverage of exchange rates). - -One colleague of mine was heavily invested in a
Russian concern in the early days of Perestroika and ended up getting the works
of new Russian authors for US publication and supposed profit as “payment” of
his investment (he was a partner in a shipping company; totally unrelated!).
4. Joint Ventures - Generally a hybrid product or service is created
and tweaked as a first-step towards and acquisition or Direct Investment in the
entire company (per #3 above) or eliminated, in the case of a failure, with
little damage to the respective partners.
Pro – This is an excellent way to acquire market share at
lower risk and cost than a Direct Entry platform and in lockstep with a more
risk-based step if successful. Fujitsu Siemens Computers, a 1999 joint
venture between Japanese Fujitsu Limited and German Siemens AG, acquired
aggregate markets across Europe, the Middle East and Africa; its Services
function had a presence in 170 countries globally. After a decade, Fujitsu
bought out Siemens and Fujitsu Technical Solutions was born and now specializes
in “green” computers, capturing both depth and breadth in this highly
competitive space.
Con - Locals will tend to identify/favor the local partner’s
brand for its familiarity and context, so many winning strategies include new
names, combining the best of both partners’ brand promises, for new products
and services stemming from a joint venture. It is also advised to leverage
localization issues (naming conventions, trends, etc.) for greatest
effectiveness and ROI, with thorough testing advised. – No one need repeat Ford
Motor Company’s “Nova” gaffe (‘no go”) in Spanish-speaking markets but rather
leverage local options. When refining companies Shell Oil and Saudi
Refining formed a joint venture to join assets in specific US regions, it was
initially named Star (and is now called Motiva) Enterprise/s, leveraging a
neutral, aspirational symbol in both cultures.
5. Licensing This strategy refers to acquiring the right to imprint
your product or service with renowned, registered brands, generally on
something of an exclusive basis. Because the US is the Monarch/Matriarch of
Brand, this strategy is generally more viable for foreign companies trying to
enter the US market than the reverse.
When I ran a worldwide Sales and Marketing Division overseas, one of the
quick ways we (re-)entered the US market was to purchase licenses for
exclusivity in our market from major brands like Disney. Since US brands were
aspirational for our company at the time, this was an excellent, relatively
low-cost way of appearing on the US Retail radar and distinguishing ourselves
as the “cool” choice in our local markets. Additionally, we got another huge
bump: implying by association that our products were at the same quality
level as the USA’s – a true leg up in the global marketplace at a relatively
low cost and with minimal maintenance.
As
you can see, each of the above overseas go-to-market (GTM) platform
options offers strengths and weaknesses subject to the prevailing
context
(i.e., available resources and commitment levels); none is the best (or
worst). However, it’s good to consider both current and aspirational
positions and goals when making a choice. I generally recommend
starting
with a lower risk option (e.g., Indirect Entry or Joint Venture) and
maturing
Sales to warrant Direct Entry/established in-market facilities with a
solid
revenue base. However, some folks jump right into the market with both
feet
(i.e., Direct Entry) anyway. We salute all intrepid international
business leaders and are here to assist you with your international
expansion and growth.
Lucie M. Newcomb
President & CEO
The NewComm Global Group, Inc.
hello@newcommglobal.com
